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Kinder Morgan Subsidiaries Help Company Rake in 1Q Profits

Subsidiaries of Kinder Morgan Inc. (KMI) propelled the company to big profits during the first quarter of 2013, allowing it to raise its quarterly dividend 19% and aligning it for more than $12 billion of expansion and joint venture (JV) projects across North America.

During a 1Q2013 earnings call on Wednesday, CEO Richard Kinder said KMI had raised its dividend to 38 cents/share, and had $513 million in cash on hand to pay dividends in the future, compared to the $303 million it had available after 1Q2012.

Kinder said KMI's "strong performance was driven by good results" at KMI's remaining pipeline assets, but especially by Kinder Morgan Energy Partners LP (KMP) and El Paso Pipeline Partners LP (EPB), which raised their quarterly distributions to $1.30/unit (up 8% from 1Q2012) and 62 cents/unit (up 22%), respectively.

"We believe natural gas is clearly the fossil fuel of the future," Kinder said. "It's domestic, clean, abundant and reasonably priced. And that makes it a clear winner for this country for decades to come. [But] one of the biggest challenges to this rosy scenario is to overcome the obstacles in midstream infrastructure to ensure that there's adequate capacity to connect the new sources of supply to the markets where the demand is."

Kinder said KMP's natural gas division is expected to add 2.7 Bcf/d of transportation capacity and grow from 62,000 to 70,000 miles of pipelines in May, after it closes on the acquisition of Copano Energy LLC (see Shale Daily, Jan. 31). Kinder said the acquisition of Copano is also expected to add 1 Bcf/d of processing capacity and 315 MMcf/d of treating capacity.

"Aside from Copano, we have lots of other projects underway in our natural gas segment at KMP," Kinder said. Specifically, he cited KMI's binding open season through May for the proposed 1,025-mile Freedom Pipeline, and the company's $900 million investment in another subsidiary, Tennessee Gas Pipeline Co. LLC (TGP), for the latter's Northeast Upgrade Project (see Shale Daily, April 5; April 3).

"Let me emphasize, as we said before, we won't build [the Freedom Pipeline] unless we have customer support through binding long-term contracts," Kinder said.

Notwithstanding that uncertainty, Kinder said KMI's products pipelines business segment "had a very good first quarter" due to increased volumes and margins from its Transmix operations, higher volumes and revenues from its Cochin Pipeline -- which transports natural gas liquids (NGL) in three Canadian provinces and seven northern states -- and the addition of the Kinder Morgan Crude Condensate (KMCC) pipeline during 2Q2012 (see Shale Daily, Aug. 24, 2012).

"In this segment, our NGL volumes increased by 32%, over a year ago, [and] our NGL revenues were up 56%," Kinder said. He later added that the company is planning "significant expansions of our KMCC line, construction of our Parkway Pipeline in Louisiana and Mississippi and the reversal of our Cochin Pipeline to move condensate up to Alberta."

Kinder said the company was excited about liquefied natural gas (LNG) export opportunities through EPB's partnership with a Royal Dutch Shell plc subsidiary -- Shell US Gas & Power LLC -- at Southern LNG Co. LLC's Elba Island LNG Terminal near Savannah, GA. EPB owns 51% of the project and serves as operator. Kinder said EPB is also planning to purchase KMI's Gulf LNG Terminal in Pascagoula, MS.

During the subsequent Q&A session with financial analysts, Kinder said the company was focusing on LNG exports to countries that are party to a free trade agreement (FTA) with the United States, citing uncertainty from the U.S. Department of Energy (DOE) over LNG exports to non-FTA countries.

"We're not sure what the non-FTA process is," Kinder said. "I mean, just as recently as yesterday at a conference, the [DOE] undersecretary who's in charge with making these decisions said he didn't know when they would make the decision.

"Our view is that there will be substantial amounts of non-FTA [exports] approved, particularly for those plants that have good contracts with viable, creditworthy companies. But we can't guarantee that that's going to happen. So we've concentrated on the FTA. And as I said in my remarks, the beauty of the deal with Shell at Elba Island is that whole first phase is not contingent on getting the non-FTA approval.

"Now at the Gulf, where we have more space, more opportunity there in terms of sizing, we're working with some customers there to do an FTA train and we're working with other customers to work on non-FTA volumes, too. But again, our first preference is to get FTA signed up because there, we have projects we can depend on and know that they're going forward."

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